Corporation Tax outstanding and Personal Liability

[kitbag1]

Hi, I am looking for some ideas on what I should do next as I am stressed to the max on this. I have had a Ltd company for the past 10 years as a consultant and have had no problems with paying any of my taxes, that is until 2 years ago when I had a health scare on the back of probably the best year I had ever had. Since then my fortunes have been mixed and work has been patchy and hard to come by. On top of that I had another health scare last summer though thankfully all clear.

Currently I am in the position where I made arrangements with the tax man to pay off my outstanding personal tax £26K and corporation tax £21k over 18 months this time last year. To date I have paid around £20K to the outstanding personal tax. However work has dried up, I have a VAT bill looming and PAYE outstanding. And currently no sign of any contracts coming up so will be back in the same place as I was this time last year. What is my best course of action here? Should I liquidate? My friend tells me that I should liquidate. Do I need a liquidator as i don't have any money. Any advice would be really welcomed as the clock is ticking loudly for me right now.

 

[jim_price]

You don't need a liquidator. There are a number of recent threads on this subject, and some excellent contributions on how to wrap your company up by simply writing to creditors (HMRC) to advise the company has ceased trading and has no money to appoint a liquidator. You also inform them of your intention to strike off the company if you don't hear from any creditors. HMRC will probably object to the strking off and may appoint the Official Receiver to act as liquidator.

My concern is that you appear to have generated sufficient funds to pay down your personal tax liability but not the corporation tax liability. They may take offence at that.

 

[kitbag1]

Thanks Jim, yes I have been reading the threads. Never having been through this before it all seems a bit overwhelming. My intention had been of course to pay all outstanding taxes and not be in this position.

I don't have any creditors or other outstanding other than to HMRC. Should i write to them do you think?

And for clarification - it was not my decision to pay off one tax versus the other. HMRC lumped the two amounts together and appear through the various account updates I have received to deduct any money paid to them from my personal tax outstanding first.

 

[kitbag1]

One other thing. I am based in Scotland. Is there any difference in the law?

 

[Spongebob]

You don't need a liquidator. There are a number of recent threads on this subject, and some excellent contributions on how to wrap your company up by simply writing to creditors (HMRC) to advise the company has ceased trading and has no money to appoint a liquidator. You also inform them of your intention to strike off the company if you don't hear from any creditors. HMRC will probably object to the strking off and may appoint the Official Receiver to act as liquidator.

This is exactly the right strategy. However, it should be understood that HMRC (or any other creditor) do not actually appoint the Official Receiver. The High Court makes the appointment after hearing a winding up petition made by a creditor.

In reality the only creditor likely to serve a winding up order on the company is HMRC; they do it as a matter of course as they seem to like to tie up any loose ends - any other creditor would see it as a case of throwing good money after bad and simply write the debt off without taking the ultimate action.

 

[Spongebob]

And for clarification - it was not my decision to pay off one tax versus the other. HMRC lumped the two amounts together and appear through the various account updates I have received to deduct any money paid to them from my personal tax outstanding first.

But who paid them - you or the company? If you sent them personal cheques and they allocated these monies against your personal tax then you should be in the clear; if however, you sent company cheques you could have a problem.

In these situations it is always vital to understand that you and the company are totally separate legal entities. The easiest way to think of it is to look at the company as being a separate person. If you have paid your own tax from your own resources then that is fine. If the company has paid your tax on your behalf then that could be considered a misuse of company funds. If this is what has happened then you need to speak to a good accountant to see if a little retrospective 'juggling' is possible.

 

[Spongebob]

One other thing. I am based in Scotland. Is there any difference in the law?

Sorry - missed that bit!

I have no idea what the law is in Scotland... it probably renders all my advice meaningless!

 

[kitbag1]

Thanks for you help on this. Really appreciated. So, it has been a mixture of personal and business payments though the majority have been through the business with me at times having to transfer money to the business to make the payments! Sounds like I have been a bit dumb on this thinking I could trade my way out of it! Lumping the two lots of tax together was on the advice of my accountant and he did the deal with the tax man.

And when you say problem what sort of problem are you thinking of?

 

[Spongebob]

Thanks for you help on this. Really appreciated. So, it has been a mixture of personal and business payments though the majority have been through the business with me at times having to transfer money to the business to make the payments! Sounds like I have been a bit dumb on this thinking I could trade my way out of it! Lumping the two lots of tax together was on the advice of my accountant and he did the deal with the tax man.

And when you say problem what sort of problem are you thinking of?

So you have been transferring money from your personal resources to the company bank account and then writing company cheques to pay personal tax...

You really should have just sent personal cheques to HMRC. The problem is that you have introduced capital into the business and then in a totally separate transaction the company has made a payment against your personal tax liability.

In the event of liquidation the capital introduced will be viewed as a liability and will not be repaid, but the payment to HMRC on your behalf will be viewed as a loan to you and therefore an asset. The OR will seek to reclaim this from you personally.

Your accountant has fooked up big time if this was the advice he gave you. You need to speak with him immediately to see if he can undo the damage with a little creativity or sleight of hand...

 

[kitbag1]

Gotcha. You make things really clear and I really appreciate the time you take to respond. The penny is slowly dropping on keeping in mind the difference between personal and company. This feels like a hard lesson to learn.

My accounts for 09/10 have not been completed yet when I was trying to pay back outstanding. I have double checked. The amounts paid to tax from bus a/c have not come from me putting my own money into business but from money coming in through invoice paid. Different problem I think is what you will tell me but I should see an accountant asap?

As an FYI. I have drawn income out 09/10 around one third of what I have drawn in previous years - business downturn, paying off tax. Drawing on savings (now gone) to make up the income shortfall to keep me personally in survival mode believing it would all come good in the end.

 

[PaulCCS]

Could you not just come to another deal with HMRC?

If you need help on tax arrangements I can recommend a company that can negotiate on your behalf with HMRC and may be able to quickly arrange a 'Payment Plan' based upon a realistic monthly figure that you can afford. This can be for personal, business or both.

Let me know if you want their details.

 

[Spongebob]

Could you not just come to another deal with HMRC?

If you need help on tax arrangements I can recommend a company that can negotiate on your behalf with HMRC and may be able to quickly arrange a ‘Payment Plan’ based upon a realistic monthly figure that you can afford. This can be for personal, business or both.

Let me know if you want their details.

Don't you just love Insolvency Practitioners?

They never miss an opportunity to try and squeeze a few quid out of a guy who's at rock bottom!

Which bit of "I haven't got any money" did you not understand, Paul?

 

[Hedgie]

I did just that. I wrote to HMRC and informed them of my lack of finances and that I would be applying to CH for striking off.

Gave them plenty of warning and time to object. I also sent copies of the letter to 4 different tax sections to make sure all angles had been covered.

HMRC did not object and my company has now been struck off and the company take liability with it. Thankfully it was only £3500 though.

 

[PaulCCS]

Don't you just love Insolvency Practitioners?

They never miss an opportunity to try and squeeze a few quid out of a guy who's at rock bottom!

Which bit of "I haven't got any money" did you not understand, Paul?

I wish I had your black and white view of life spongebob. Again, it's only an option, just as your favourite advice of do nothing and hope the ground swallows him up is an option.

Have you had a bad experience with IPs spongebob?

 

[Williams lester]

Have you had a bad experience with IPs spongebob?

Hasn't everyone?

 

[PaulCCS]

Hasn't everyone?

All those years of exams and everyone hates me...

Knew I should have been a boring accountant...

 

[kitbag1]

Thanks guys, yes Paul I would have tried to reach an agreement once again with HMRC, if I knew where my next work was coming from and could offer something by way of how much and when. Right now......... that is a no can do and SB picked up exactly where I am and that I have indeed run out of money!

Hedgie, thanks for sharing your experience. Just to be clear best course of action - I write to HMRC and let them know where I am in all this and will be seeking to strike company off?

SB mega thanks for picking up where I am right now.